So long Year of Acceleration, it seems. From the IMF (via the WSJ):
The International Monetary Fund Thursday slashed its forecasts for U.S. economic growth, calling for the Federal Reserve to hold off its first rate increase in nearly a decade until 2016. In its annual review of the U.S. economy, the IMF said a series of negative shocks, including a strong dollar and bad weather, had sapped momentum for job creation and expansion, forcing the fund to downgrade its growth expectations to 2.5% for the year. Its last estimate in April was for a 3.1% expansion.
If the IMF is right, the US will not have had a 3% or higher GDP year since 2005. And while the IMF focus on some “negative shocks,” there continues to evidence — at least in the data as we have it — of something more secular happening. Like this (via the WSJ):
U.S. worker productivity fell in the opening months of 2015, underscoring an economic soft patch marked by weak business investment and tepid wage gains. The productivity of nonfarm workers, measured as the output of goods and services per hour worked, decreased at a 3.1% seasonally adjusted annual rate in the first quarter, the Labor Department said Thursday. That was revised down from an initial estimate of a 1.9% slide.
And here are three takes on the productivity numbers:
— “To the extent that the Q1 growth weakness was driven by one-off factors (e.g., weather, West Coast port closures and residual seasonality in the data), once output growth returns to its underlying trend in Q2 so should productivity growth. However, we would point out that productivity growth has been particularly subdued in recent years, and we do not see evidence in the data that it is about to break through from that trend in the near term.” – Barclays
— “Weak productivity is not necessarily a new story, but this downward revision made an already-weak trend look even worse. Productivity increased only 0.3% oya in 1Q and was up 0.6% annualized over the past five years—this is the worst five-year run for productivity since the early 1980s and the worst five-year performance on record outside of a recession.” – JPMorgan
— “The first quarter plunge can be waved away. Like GDP and for similar reasons (residual seasonality, dumb bad luck, etc.), productivity tends to come in low or drop in the first quarter and rebound in the second. That’s why it is better to focus on its year-over-year growth rate (plus 0.3%) or on recent trends. For four consecutive years, labor productivity has grown less than 1%, that will happen again this year; the 50 year average is 2.0%. What’s going on? It’s a puzzle. Explanations include one Paul Krugman gave in his New York Times column on May 25: “So what do I think is going on with technology? The answer is that I don’t know — but neither does anyone else.” and Robert Gordons: “the digital electronics revolution has begun to encounter diminishing returns…. a decline in the ‘dynamism’ of the economy as measured by the rate of creation of new firms.” That GDP growth may be understated is also part of the answer.” – IHS Global
Here is a more upbeat take on productivity from Goldman Sachs, looking at the GDPmeasurement issue.
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